TOKYO—In a key step forward, the operator of Japan's Fukushima Daiichi nuclear power plant Monday began a cooling system that allows heavily contaminated water to be re-used as a coolant for the reactor cores after the liquid undergoes a four-stage filtering process.

The system will substantially reduce the creation of highly radioactive water at the site as water was injected into the reactor cores to stop a dangerous rise in temperature. Some 110,000 metric tons of contaminated water has already built up in the plant's basements and the operator, Tokyo Electric Power Co., was on the verge of running out of suitable storage space.